interested to hear your thoughts in switching back from Ltd to umbrella

[gandy666]

hi fellow contractors
I've been operating as a Ltd company for the past 6 years. I decided to take a break for a six months, kept the company going then moved to Scotland where I, more or less, committed career suicide. I am in the process of closing my company down - its been about four months since the process started and - you guess it - I have just been offered a contract.

I have heard from a few people on various forums that its sometimes not such a bad idea to close a company down to draw a line under it for IR35 reasons and start afresh. do you guys agrees? when the company closed I did not recieve and entrepreneurs relief as the company accounts were empty. I"ve just had my corporation tax bill and once paid, that'll be the end of it.

Would you guys recommend keeping my company going, starting a new company, or going with an umbrella for a wee while?

I'm not trying to do anything dodgy, nor do I want to bring myself to the attention of HMRC for appearing dodgy - i was just struggling for work, the accounts were getting empty and I was paying out for accountancy, which I would have needed to do anyway if I went dormant, so decided to close.

all replies greatfully recieved.

thank you

[malvolio]

Can't see why it would be a problem to open a new company, provided you can demonstrate why you were closing the old one down and the timelines between starting that and the new offer arriving.

[gandy666]

would there be a problem starting a new company whilst the other is closing down? I like to keep below the parapet.

is the general consensus that it is a good idea to close your Ltd company and start afresh every five to ten years, or is this bad practice?


thanks

[Jessica@WhiteFieldTax]

I honestly can't see any change in risk profile with opening another company whilst closing one down; the only real risk area could be around entrepreneurs relief which you state isn't applicable.

On your second point, closing down every five year a or so and restarting, it gets talked about sometimes but very few people do it in practice. If ER isn't an issue and everyone is paid then it's unlikely to be provocative, and would help manage risks to a degree.

[Zero Liability]

How do you mean the ER could be a risk issue, generally speaking? I intend to close down my company at some point in the near future as I'd like to return to permiedom for a while and specifically graduate roles, whilst I broaden my skillset, and maybe go for some contract roles via an umbrella until I land a permie role, particularly given that graduate roles tend to have fixed start dates. My accountant has mentioned it may be worthwhile leaving whatever I don't intend to draw as salary or dividends in the company, to benefit from ER upon closure. It won't be too much really, around £12k, with £10k of that being below the CGT threshold I would imagine?

[LisaContractorUmbrella]

If the contract you've been offered is only for a few months and you think that you'll struggle to find more contracting work at the end of it then the umbrella option is a sensible one for you - if the contract's for 12 months + then another Ltd would probably be the way to go - can't see any issues with it

[Clare@InTouch]

How do you mean the ER could be a risk issue, generally speaking? I intend to close down my company at some point in the near future as I'd like to return to permiedom for a while and specifically graduate roles, whilst I broaden my skillset, and maybe go for some contract roles via an umbrella until I land a permie role, particularly given that graduate roles tend to have fixed start dates. My accountant has mentioned it may be worthwhile leaving whatever I don't intend to draw as salary or dividends in the company, to benefit from ER upon closure. It won't be too much really, around £12k, with £10k of that being below the CGT threshold I would imagine?

That's what I'd advise, as the final gain would then be tax free.

The potential risk in closing and claiming ER is that HMRC could refuse it if it's being done solely for tax reasons. This commonly happens when someone closes, claims ER, then start a new company doing the same thing - the only reason they closed being that they wanted the lower tax rate on the gain. If you're closing to go perm or study on the other hand, I can't see an issue.